Each year in May the National Association of Realtors(R) (NAR) holds its mid-year meetings in Washington, D.C. The purpose is twofold. One is to do the internal business of the association (MLS policies, Professional Standards, Budget & Finance, etc.). The other purpose -- of equal, if not greater, importance - is to send organized groups of members from around the country to lobby their respective elected representatives on issues of importance to real estate.
It is a disciplined effort. Members are not there to discuss particular local issues, nor are they there to press personal views about such things as social issues or foreign policy. They are there to talk about issues related to the real estate business, home ownership, land use, and property rights. NAR's large and well-regarded legislative staff provides briefings on the issues and sends members to Capitol Hill armed with thorough background papers and neatly summarized talking points.
There is never a shortage of issues. Some are recurring (the battle to keep banks out of the real estate brokerage business went on for years); others may loom large in a particular session and then fade from the scene.
This year's agenda covered a range of issues: from the National Flood Insurance Program to short sales to Freddie Mac and Fannie Mae. But, a subset of those issues engendered a particular sense of urgency - stronger than any I have seen in more than 20 years of attending these meetings.
The concern is this: there are currently a number of bills and proposals working through Congress that -- while individually distinct and apparently unrelated - taken together could have cumulative negative effects on home ownership in the United States. Within this group are four areas of concern:
1. Preserving homeownership tax benefits: While no current legislative proposal takes aim at the Mortgage Interest Deductions (MID), the subject is certainly on the table. It was put there by the President's "Deficit Commission" in December. Realtors are urging their representatives to sign on to House Resolution 25 - that the current deductions available not be further restricted - but this is no longer the motherhood and apple pie issue that it once was. While it is not likely that the mortgage interest deduction is just going to go away in this session, there is considerable sentiment that it may be altered. MIDs for second homes would seem to be in special jeopardy.
2. The Secondary Mortgage Market: More than 9 different bills to "reform" Fannie Mae and Freddie Mac (collectively known as "GSEs", for "Government Sponsored Enterprises") have been introduced. Those with the most traction seem to be the ones that would reform the GSEs by shutting them down, with no replacement offered. An NAR talking point bulletin puts it this way, "Currently, estimates of GSE loan volume range as high as two-thirds of mortgage loans. Elimination of the GSEs, without a visible replacement for their secondary mortgage mission, will mean severely restricted mortgage capital and higher costs for qualified, creditworthy borrowers. The reduction in mortgage liquidity will exacerbate downward pressure on home prices ultimately reducing the home values for existing home owners."
3. Reduction in loan limits: Current loan limits for the GSEs and FHA are set to expire September 30. Bills have been introduced that would further reduce the GSE limits to the FHA limit of $417,000. This could have a devastating effect on some of those markets hardest hit by the financial crisis. (High loan limits didn't cause the mortgage mess; irresponsible underwriting did.) Moreover, this doesn't affect just a few high-priced areas. A NAR talking point bulletin points out, "Reverting to the statutory limits will reduce limits in 619 counties and 41 states and the District of Columbia. The average decline in loan limits will be more than $58,000."
4. Proposed regulations regarding Qualified Residential Mortgages: Under the Dodd-Frank act, banks have to retain 5% risk of mortgages they sell, except in the case of a Qualified Residential Mortgage (QRM). Obviously, then, a non-QRM will be more costly for the consumer. But the bill only defined QRMs in broad terms. The details are left to regulators. According to a Senate letter authored by Senators Landrieu, Hagan, and Isakson, "The proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions. These restrictions unduly narrow the QRM definition and would necessarily increase consumer costs and reduce access to affordable credit." Those restrictions include a minimum down payment of 20%, plus high credit scores and qualifying ratios. They ignore the risk-mitigation effects of PMI. Should these regulations come into effect, they will eliminate a significant portion of potential home buyers.
The pendulum swings. In the first decade of this century, the pendulum swung so far in one direction that it achieved a highest-ever home ownership rate in the United States. Unfortunately, that came at the cost of an unsupervised mortgage market that went awry. Subsequent foreclosures have sent the home ownership rate back down. Now the pendulum is swinging the other way. And that's OK, as long as it doesn't swing so far back as to make homeownership out of reach for millions of capable and responsible citizens trying to fulfill the dream.